Service Providers Still Act Like Utilities

If you ever want to enliven a cocktail party filled with executives from the telecommunications or cable industry, just start talking about dumb pipes. As in, “your service doesn’t offer anything more than a simple connection from my devices to the internet content I want—it’s a dumb pipe.”

Of course, most of you will never have to worry about going through such an awkward social encounter, but if you do—that zinger is bound to get things going.

All kidding aside, the notion that telco carriers and other service providers have provided little more than basic connectivity has been an industry hot button for quite some time. Even now, despite a number of efforts to spice things up, most telcos and cable service providers are seen as companies that provide a very indistinct connectivity service that people only reluctantly pay for.

The primary differentiators for competitive players in this space are price, price and, oh yeah, price, with maybe a bit of coverage or service quality thrown in for good measure. It’s little wonder that many consumers hold these companies in such low esteem—they just don’t see the value in the services beyond basic connectivity. It’s also not surprising that so many people are looking at cord-cutting, cord replacement, or other options that attempt to cut these service providers out of the picture.

But it doesn’t have to be this way.

The amount of data that telco and cable service providers have access to should allow them to generate some very interesting, useful and valuable services that consumers should be happy to pay for. Now, admittedly, there are some serious privacy and regulatory concerns that have to be taken into consideration, but with appropriate anonymizing techniques, there are some very intriguing possibilities.

For example, by leveraging new machine learning or artificial intelligence algorithms, service providers should be able to aggregate data usage patterns to help determine everything from traffic patterns, to breaking news algorithms, program recommendation engines, and much more.

At a more basic level, who better to manage things like my contacts, or offer an intelligent, unified communications service that lets me see and manage all my various forms of communication, than the companies over whose network those messages travel?

Ironically, for those who are particularly privacy sensitive, the notion of paying for a highly secure, completely anonymized truly “dumb pipe” could also be an attractive option. While certain levels of privacy and security should be expected (nee demanded) from service providers, the notion of paying for extra security is something I believe most consumers will start to really appreciate.

More critically, there is a crying need to provide some kind of smart hub inside our homes so that we can easily see, connect and manage all the potential connected devices and services in our homes: from smartphones, PCs and tablets, to TVs, lights, HVAC controls and even smart cars. But instead of offering an intuitive, friendly device similar to something I wrote about a few weeks back (“Rethinking Smart Home Gateways”), service providers continue to offer non-descript black boxes whose very designs belie their archaic, impenetrable means of operation.[pullquote]The fundamental problem is that service providers act more like utilities than companies that offer services people are happy to pay for, such as Netflix. [/pullquote]

The fundamental problem is that service providers act more like utilities than companies that offer services people are happy to pay for, such as Netflix. There’s little sense of personalization or differentiation from service providers and the aforementioned router/gateway boxes they currently force into consumers’ homes are a classic example of that utility-style of thinking. Honestly, if your power company was to put a box into your home, do you think it would look much different?

In order to break this cycle, and avoid the risk of being cut straight out of people’s lives through various types of cord-cutting/replacement mechanisms, service providers need to start thinking very differently about the types of services they offer. They need to create, discover and deliver services that people actually value, and do so in a more personal, non-utility like way.

To their credit, a number of the major US telco and cable providers are making efforts to reach these goals, but they still primarily reflect a utility mindset. To break that means of thinking, they would be wise to look at how providers of services on the Internet—whether that be someone like Spotify, Uber, or Amazon—build and sell the kinds of services that consumers are more than happy to pay for. Only with that kind of out-of-the-box thinking can they truly move past their utility-driven focus and stop being little more than “dumb pipes.”

Published by

Bob O'Donnell

Bob O’Donnell is the president and chief analyst of TECHnalysis Research, LLC a technology consulting and market research firm that provides strategic consulting and market research services to the technology industry and professional financial community. You can follow him on Twitter @bobodtech.

628 thoughts on “Service Providers Still Act Like Utilities”

  1. I’m curious about 2 things:

    1- we’ve used companies to transit our data (mobile, internet, phone calls, paper mail) for decades and centuries. Has any of those, anywhere, ever, managed to add value in any way but cutting costs and bother ? To my knowledge, none has, ever, which is probably a clue.

    2- if they did, say, invent facebook/ggogle/HBO, why should they limit it to their own customers ? Which in itself hampers success because network effects ?

  2. Strange, It is my perception (and annoyance) that service providers are trying too hard (and (inevitably) failing) to be more than a utility. I feel it would be best if they could humbly accept their destiny as dumb pipe.

  3. “It’s little wonder that many
    consumers hold these companies in such low esteem—they just don’t see
    the value in the services beyond basic connectivity”

    No, that’s not why we hold them in low esteem. We hold them in low esteem because they treat their customers like feces. We hold them in low esteem because they have turned customer anti-service into an art form. We hold them in low esteem because of their unmitigated greed married to a complete disinterest in making us happy with their service.

    I would not touch any service that I did not absolutely need to buy offered by *any* telco or cable operator (up here in Toronto, Bell and Rogers) with a ten foot pole. Fortunately I am able to buy my internet service from Teksavvy, who purchase bandwidth (your choice of DSL or cable) from the Evil Empires and then resell it. In the process they provide acceptable customer service and far better rates than it is possible to get from either of the Evil Empires.

    Handing over my personal information and habits to Rogers or Bell in order to allow them to offer me “services” strikes me as akin to a pig turning to the local butcher for protection.

    1. Agree with this. Some examples:
      – The cell providers force us to buy more data than we need by penalizing us if we go over, instead of charging us for just what we use. The tier system is completely artificial and anti-consumer.
      – Charging us exorbitant rates when traveling out of the country (except for T-Mobile)
      – Charging a variety of nonsensical fees such as connecting a new device.
      – Charging $10 per month for a tablet regardless of use when we already pay for data.
      – Changing rate plans every time another change was made to an account
      – A legacy of nickel and diming us, charging to send images, sms messages, and restricting third party services until the iPhone broke that policy. That built up this animosity that they now have to contend with.
      These companies are now reaping what they sowed.

      1. Actually the iPhone was the first phone where a data plan was mandatory upon purchase. This, not by common sense, but by policy.

        1. That’s not true. My HTC Windows phone and Blackberry before that required data plans. Even when I told them I just wanted it for when I was around wifi. No Joy.


          1. I stand corrected. It was the iPhone for me, and I buy 2 phones per year.

            Lesson-Never assume.

          2. I’m trying to cut down on my once/year phone buying. I got shamed this summer when I a) drowned my current one and had to go back to the previous Huawei Ascend Mate v1, which still works fine and b) got my Galaxy Note v1 (2011) back from iBrother, put CM something-something on it (Android 5.1 overwriting its 2.3), and it works fine too (plus: AMOLED ! yeah !).

            I’m just so curious of how good cheap phones have become though. My current one is an oversize Xiaomi Redmi Note 3 Pro (the $300 Mi Max), I’m really wondering if I’d prefer its $200 regular-size brethren. I was wondering about Nexus devices too, but at the new prices, I’ll get a Vuitton manpurse instead ^^

          3. The US are a weird market. I was using smartphones long before I judged a data plan was worth it. Bought them unlocked, got an SD card (indispensable already a decade ago ^^) and filled it up with ebooks, abooks, music, and news siterips du jour for the 10-20% of the time I was out of wifi coverage. The carriers had no say about it because the phone was certified (as all phones sold in France are), so it wasn’t their decision to allow it onto their network or not.
            Nowadays, I buy my phones in China, so they could shut me down I guess, except if they do I’ll just switch to another carrier, so they don’t.

            Funny how a regulated market can be freer than an unregulated one…

        2. Yes, Apple led the world kicking and screaming into a new era.

          It wouldn’t be common sense for Apple to have partnered with a provider to usher in this new paradigm of push mail and internet in your hand. Not at all.

          It would have been far better to wait for all the telcos to slowly catch up to the idea while they experimented with sixty different protocols.

          Yes. Apple should have let the market decide everything for them.

          1. Of course, it’s all about “what’s best for Apple”.
            Look, a company looking after their interests is nothing remarkable. A buyer conceding theirs is.

  4. Correct me if I’m wrong, but if the Internet connection is encrypted, as is standard practice nowadays, middle-men should not have any access to the content of the communication at all. The will know the domain name, but will not have access to any content or even the URL path after the domain name.

    Service providers will actually have very, very little data to learn from. The won’t get to see the search terms on Google for example, nor should they be able to see your email.

    Has this been considered in your analysis?

    1. ​I would also like to know how such activity would relate to the Wiretap Act. Google, in defense of its GMail scanning practices, has even gone so far as to say that people who send email to GMail users should have no expectation of privacy to begin with.

      Unless you spend tons of money on lobbying the government and have enough money to pay a team of very expensive lawyers, I don’t think it would be wise for anyone to fly this close to the sun.

      1. I had to help my iBrother over the shock of being told by his +2 (1 step down from “head of IT” for a top-10 French firm) that they should stop using FTP because it’s unsafe, and use email instead. For non-encrypted docs. During a meeting, so nobody dared to object/explain.

        I’m guessing privacy is expected, and we’ll have fun with that at some point.

  5. Wow. I disagree so strongly with the premise of this article.
    I WANT a dumb pipe for my provider. Give me the best dumb pipe and I will be your loyal customer.
    I really don’t want my ISP looking at my contacts and data or mining it with machine learning. Bad word that really hard.
    ISPs should be private and secure by default, not for an extra fee.
    And the people who brought us the cheapest, garbage interface DVRs, cable boxes, and modems as the smart hub in my house? Not bloody likely.
    ISPs should be utilities.

    1. As long as most cable ISPs have monopoly control over their areas without real competition, they should be utilities. Comcast’s latest play expanding data caps just shows what it looks like with no competition. That needs to change and Nashville should prevail as well as municipalities being allowed to offer wifi without regard to the local cable provider.


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